Tag Archives: Gold investment Advice

The big news on Wednesday was the passing of Steve Jobs, the visionary who led Apple Inc. (NASDAQ/AAPL) to new heights. But with his death, the future of Apple will be the constant subject of debate. The concern obviously will be the ability of Apple to continue to drive innovation without Jobs. Apple is trading down about 1.75% in the pre-market.

Apple is the largest company in the world, with an astounding market cap in excess of $350 billion, which would rank it 29th on the International Monetary Fund GDP rankings for 2010. That’s impressive; but, at one point back in 1997, the stock was hemorrhaging at below $5.00, suffering a slow death and on the verge of collapse. Co-founder Steve Jobs came back to run Apple in 1997 to try to turn the ailing company around. Apple subsequently bounced higher, but fell back to the $7.00 range in 2002. Institutions and retail investors alike began to dump the stock, running for the exits.

Undeterred, Jobs introduced radical changes to Apple to re-invent the company via new and flashy desktops, laptops, and eventually leading to the “iPod,” “iPhone,” and “iPad.”

With this change in direction, Apple would ultimately become the darling of the investment community and techies worldwide. But what happened at Apple is not an aberration.

Companies do move up and down. The key is to look for companies such as Apple that are going through operational issues but where there is some hidden, core value. That was the case with Apple. Investors recognizing this great opportunity in 1997 have since made over 75 times their money. An investment of about $13,000 in Apple in 1997 would make you a millionaire today. A $100,000 investment is worth nearly $8.0 million!

Now, if someone would ask me, “What are the best stocks?” Apple would definitely be up there. The reality is that Apple is the “best of breed.” Just look at the iPad sales. Apple sold 9.2 million in the second quarter versus a mere 0.49 million for the equivalent “PlayBook” by Research In Motion Limited (NASDAQ/RIMM). For 2012, estimates call for the sale of 62.5 million iPads. Don’t be at all surprised to see Research In Motion (RIM) look at dumping its PlayBook, which is nice, but really not close to the iPad. RIM disappointed with third-quarter revenues and earnings per share falling short.

RIM did bounce over 14% on Wednesday on takeover speculation following a break below $20.00, its lowest level in nearly six years. Speculation is that Vodafone (London/VOD) may be looking at RIM.

While Apple is at the top, the company will need to continue to innovate going forward to brush off rivals without having Jobs around providing his extraordinary guidance and vision.

Clearly it will not be easy, but Jobs has entrenched his vision in Apple.

The third quarter has finally closed…and thank goodness. If you weren’t short the stock market, you were feeling its pain. The broader market basically fell off a cliff in the last week of July and first week of August. The S&P 500 Index has been trading in a tight range ever since around the 1,175 level and the near-term trend seems to be more of the same. If there is to be any breakout to the upside, we’ll need some hardy news; likely regarding the sovereign debt issue in Europe or new policy action from the Federal Reserve. While the earnings picture looks good, it’s hard to imagine spectacular results from this economy.

Also notable late in the third quarter was the price correction in commodities. It only seems reasonable that reduced expectations for global economic growth should be felt commensurately in the prices for raw materials. The spot price of gold is mimicking the recent trading action of the stock market and it’s unclear when it might resume its upward trend.

However, I do think that the medium- to long-run upward price trend in gold is intact and this is due to a combination of fundamental factors that remain in force. And we can’t forget that, while the Main Street economy isn’t producing much growth, inflation is still out there stalking consumers’ ability to employ purchasing power.

I think the current environment is an opportune one to consider gold investments and other precious metals like silver. We’re now in the price correction that precious metals deserved. The top stocks for speculative investors remain gold miners and it’s the one industry that is generating double-digit growth in revenues and earnings.

Long-term, income-seeking investors can be buyers in this market; but, of course, expected returns have been reduced. I think a blue-chip investor would be lucky to receive a 10% return on investment in the age of austerity. It’s the new reality of the economy and it’s going to last for quite a long time.

If you want to see something interesting, pull up a five-year stock chart on SPDR Gold Shares (NYSEArca/GLD). This is the gold exchange-traded fund (ETF) that’s very popular with both individual and institutional investors. Looking at the chart, you’ll notice a very consistent and defined upward trend in the value of the ETF. You’ll also notice the recent spike to a record price high of $185.00 and the subsequent price correction to its current level of around $157.00 per share. In my mind, this price correction has now fully returned the SPDR Gold Shares ETF to its primary trend and is signaling a technical bottoming out for gold. Accordingly, now seems like an appropriate time to consider new positions in these kinds of assets.

The only trading action that seems to be working for long investors is in gold stocks these days. This isn’t a surprise, nor is it unexpected with the spot price of gold so high. Two more junior gold producers, AuRico Gold (NYSE/AUQ) and Northgate Minerals (AMEX/NXG), announced a deal to merge. The two juniors hope to create a new intermediate gold player and the expectation for production growth as a combined company is significant.

In this particular case, AuRico Gold is doing the buying. The company’s share price (which has almost doubled since the beginning of the year) appreciated swiftly to a recent 52-week high of $14.17 per share. Then the company announced the all-share deal to acquire Northgate. It’s a trend that we’re going to see more of over the coming quarters. With share prices lofty and bank accounts full, everyone in the gold mining business wants to bulk up before the party’s over.

The broader stock market’s trading action reflects the overall sentiment in the economy. Add in the fact that the month of September is often not a good one for stocks, and one could easily predict that the next several weeks are going to be difficult. The stock market isn’t expensively priced, but that doesn’t mean that it will be anytime soon. There’s a mini cycle going on in the stock market and it’s all about the revision of expectations for the future. Expected returns from stocks are going down big-time, as current economic data sink in. No doubt the stock market needs a major catalyst in order for it to advance. It’s unclear at this time what that catalyst will be. As is usually the case, the market will need a combination of factors to come together if it’s going to move higher in any sustainable fashion.

The S&P 500 Index did an impressive job of recovering from the 1,120 level. It clawed its way back to 1,200 and is now trying to balance itself out with the fears in the marketplace. The next major move could be anything. What’s likely in my view is that the trading action will very difficult until we get into third-quarter earnings. Any earnings warnings from corporations in this market will not be well received. The same goes for any changes in fourth-quarter visibility come reporting time. Everything now has a fragility to it—the economy, financial markets, and expectations for the future. The only exception is the market for gold; investors still view this specific asset as a haven, even though the spot price has already gone up dramatically.

The best near-term indicator for share prices continues to be the spot price of oil. A weaker oil price is exactly what the economy needs, but it also serves to illustrate declining sentiment about the future. Stocks won’t advance until the economic news shows some major improvement.